Claim fell within Policy’s “Lending Services” exclusion so D&O insurer had no duty to defend Bank in fraud case

by Chris Graham and Joseph Kelly

Western Heritage Bank f/k/a Mesilla Valley Bank, et al v. Federal Ins. Co., Case No. CV 11-0630 MV/WPL (D. N.M. March 21, 2013)

D&O insurer, Federal, received a summary judgment; Federal had no duty to defend Bank in suit against Bank for fraudulently placing deeds of trust and liens on property to secure Bank loans and wrongfully refusing to release the liens.

The policy’s Lending Services exclusion provided that Federal “shall not be liable for Loss on account of any Claim: . . . based upon, arising from, or in consequence of the performing or failure to perform . . . Lending Services.”

“Lending Services” were defined as: “any act performed by an Insured for a Lending Customer of the Organization in the course of extending or refusing to extend credit or granting or refusing to grant a loan or any transaction in the nature of a loan, including any act of restructure, termination, transfer, repossession or foreclosure.”

Under New Mexico law interpreting exclusions “arising out of” is broad and means “originating from,” “having its origin in,” “growing out of” or “flowing from.” Here, the Bank’s placing of liens on the property and its subsequent refusal to remove them was a direct result of the Bank’s lending services and activities, and coverage thus was excluded.

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